The number of homes under contract to sell increased in May.
It's the fourth straight month in which sales volume increased, corroborating the growing notion that housing is on the mend in most U.S. markets.
Consider these other housing-related stories from the past month:
Put it all together and it looks like the housing market is about to reach its bottom (if it hasn't already).
But just because homes are going under contract to sell doesn't mean that they actually will sell. A "deal" can fall apart for all sorts of reasons including failed home inspections, buyer-seller disputes, and mortgage-related problems.
In general, though, as the number of pending contracts increase, we find that Existing Home Sales rise, too, some 45-60 days into the future. And so long as buyers' demand for homes remains strong, we would expect that home prices edge higher.
It's too soon to say that housing has turned the corner for certain, but there's an awful lot of data lately that suggests that it has.
Tuesday -- for the first time in a long while -- members of the press met the monthly Case-Shiller Index data with enthusiasm. And why shouldn't they? 19 of the 20 measured markets showed a slowing pace of home price decline in April.
Here are some of the headlines about the story:
Now, the headlines feel negative, but they're actually highlighting some key strengths in April's figures. For example, nearly half of the Case-Shiller markets posted gains in April and all but one showed month-over-month improvement.
It's a step in the right direction but doesn't mean that housing has turned around for good.
We have to be careful about how we interpret the Case-Shiller Index because it's an imperfect housing gauge. The most obvious Case-Shiller flaw is that it only measures home values in 20 cities nationwide and they're not even the 20 biggest cities.
Houston, Philadelphia, San Antonio and San Jose are excluded from the report and each ranks among the country's 10 most populous areas.
That said, the report is still important because the Case-Shiller Index identifies broader housing trends and that helps to shape economic policy.
Not only versus last month but also versus last year, the pace at which home values are falling appears to be getting slower. This is the third straight month Case-Shiller has reported as such.
Now, three months makes a trend, but the data has to stay strong through the summer months to mark a bona fide turnaround. If the Case-Shiller Index shows strength for May and June, it could be the signal for which the markets have been waiting.
At the start of the year, the "experts" made a lot of predictions about the U.S. economy and what to expect in 2009.
And nobody predicted just how big the government's stimulus package would be.
Now, on June 30, with the year officially half-over, it's as good a time as any to remember that people are much better at interpreting the past than predicting the future. Economists can make educated guesses about the future, but they're guesses nonetheless.
It's like watching the Weather Channel. A meterologist can look at the data and say it's going to rain next week, but the forecast is never 100%.
So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood. These are not the types of predictions we get from the pundits.
There's another 6 months until 2010 and there's no reason to expect the current trends to change.
The world is unpredictable and so is the U.S. economy. Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.
After all, the weatherman's been wrong before.
Mortgage markets improved last week on the heels of benign economic data and a non-inspired press release from the Federal Reserve.
Aside from trader momentum, 3 market-moving events helped set the pace last week:
- Housing data hinted at strength
- Jobless data showed softness
- The Fed said growth appears on-track
The combination of the three created volatility that -- for just the second time in the last 8 weeks -- worked in favor of rate shoppers.
Mortgage rates changed a lot last week, but they trended lower overall.
Already, however, markets are looking ahead to this week's holiday-shortened trading sessions. There is a ton of data to be released and as the week progresses, the ever-falling market volume could create some wide swings in mortgage rates.
The mystery is whether rates will be getting better or worse.
On Tuesday, markets will get Consumer Confidence and Case-Shiller Index data at 9:00 AM ET. The Case-Shiller Index is a home price measurement and it always gets a lot of press. Strength in either number should lead mortgage rates higher. Weakness should help rates ease.
Then, on Wednesday, Crude Inventories should take the spotlight. Normally, we don't watch this data point too closely but with gas prices easing last week, rising oil supplies could mean even lower gas prices ahead. This is anti-inflation and a good sign for mortgage rates.
And lastly, on Thursday, the government releases June's jobs report. This report is always a market-mover -- good or bad. And with trading volume low by Thursday, mortgage rates should move more than "normal".
Be ready to lock at a moment's notice this week. Mortgage rates continue to be volatile and the holiday-shortened week won't do anything to counter that. If you're the nervous type, when you see a rate that fits your budget, consider locking it in.
If you only saw the headlines this week, you may have missed another positive sign in the housing market.
According to the Census Bureau, the supply of newly-built homes for sale fell to 10.2 months in May, its lowest level in 10 months.
Unfortunately, the New Homes Sales story wasn't positioned as a positively by the press. Instead, the most common headline on the data read "New Home Sales Dip 0.6%" with many journalists referring to the figures as "weak" or "disappointing".
Only, that's not completely true.
See, one of the nice elements of the monthly New Home Sales report is its footnote section in which the Census Bureau talks about statistical Margin of Error and that section tells us that if the Margin of Error is larger than the measurement itself, the report is useless.
And that's exactly what happened in May.
New Home Sales were measured to have fallen by 0.6 percent but that data point was dwarfed by its 17.8 percent Margin of Error, The "headline data", in other words, was just a guess.
The press reported it anyway.
Nonetheless, as it relates to the economy, falling home inventories are a positive. Having 10-plus months of homes on the market is still high historically, but a definite improvement over what we saw earlier this year.
So long as low mortgage rates and aggressive pricing persists from builders, we expect even less supply in the months ahead.
The Federal Open Market Committee voted to leave the Fed
Funds Rate
unchanged today within its target range of 0.000-0.250
percent.
The
Fed also reiterated its plan to support the mortgage market to the tune
of $1.5 trillion.
In its press release,
the FOMC noted that the U.S. economy is not slowing with the same speed
versus just two months ago and that financial markets, in general, are
improving.
These are two signs
that the country may be emerging from recession, if it hasn't
already.
The news isn't all good,
however. The Fed made a point to highlight the potential
hazards the nations faces on its path to economic
recovery:
- The prices of energy
and commodities have been rising
- Job
losses are still mounting
nationally
- Businesses are reducing
capital expenditures
Also in its statement, the Fed acknowledged a plan to
hold the
Fed Funds Rate near zero percent "for an extended period" and a
re-commitment to the U.S. Treasury and Mortgage Bond
markets.
Market reaction to the Fed's press release has been
muted.
With no new stimulus and
no new "tools" to spur the economy unveiled, Wall Street is business as
usual. Mortgage rates are unchanged post-FOMC
today.
The FOMC's next scheduled meeting is August 11-12,
2009.
The housing market got another dose of good news yesterday.
According to the National Association of REALTORS, the number of homes sold in May increased for the third straight month and the national housing supply fell by 5 months.
Furthermore, first-time home buyers are accounting for nearly one-third of the market activity.
But, before we declare a bottom in housing, it's important that we remember the First Rule of Real Estate:
All Real Estate Is Local
National housing statistics like Existing Home Sales are painted with a very broad brush. They lump disparate locales such as San Francisco and Seattle into one sample set and don't account for regional differences, let alone neighborhood ones.
Furthermore, getting down to a city-by-city, or even street-by-street basis, we can always find homes that are selling quickly and home that are languishing. Real estate is highly local and subject to countless influences.
That said, the national data isn't completely useless. From the patterns, we can infer that low mortgage rates, ample home supply and available tax credits are providing a quantifiable boost to the broader real estate market.
And based on recent pending sales data, we can expect June and July's Existing Home Sales figures to be similarly strong to May.
Therefore, if you're in the market for a new home right now -- or plan to be soon -- be conscious of home inventory levels in your target neighborhoods. Fewer homes on the market usually means less ability for buyers to negotiate and that leads to higher sales prices.
Plus, the NAR is reporting buyer activity up 10 percent from last year.
The housing market may not be fully recovered in every housing market just yet, but in studying the data, a lot of the pieces appear to be falling into place.
The Federal Reserve begins its scheduled two-day meeting this morning.
It's one of 8 scheduled meetings for the Federal Open Market Committee this year.
When the FOMC meets, it discusses the financial and economic conditions around the country and, when appropriate, the group makes new
policy meant to speed up or slow down the economy.
The main tool for reaching this goal is the Fed Funds Rate and, earlier this year, the FOMC lowered it to "near-zero" percent in an attempt to stimulate growth.
But the Fed has other tools at its disposal, too, not the least of which is its $1.25 trillion pledge to the mortgage markets.
Now, if you'll remember, the Fed made that pledge in two parts:
- Part 1 came in November 2008 for $500 billion
- Part 2 came in March 2008 for $750 billion
After each announcement, mortgage rates reflexively dropped and stayed low for a period of a day or two. Then, fears of inflation set in on Wall Street, causing mortgage rates to pop back up because inflation is a mortgage-rate killer.
The Fed isn't expected to increase its mortgage market commitment this week, but because mortgage rates are above the government's "target zone", it's possible that the FOMC uses its post-meeting press release to give markets some guidance and its plan for the next several months.
A statement like this could alternately raise mortgage rates or lower them, depending on what the Fed says.
It's for this reason that floating a mortgage rate through tomorrow afternoon is extremely risky. The Fed could say nothing about mortgages, or it could say a lot. Either way, a small, quarter-percent change in mortgage rates can add tens of thousands of dollars to the lifetime cost of a person's pending home loan.
The Fed's press release hits the wires at 2:15 PM ET Wednesday. If
you're the cautious type, consider locking your mortgage rate prior to
its release.
Mortgage markets finished out the week unchanged last week but that's not to say that mortgage rates stayed flat.
From day-to-day, mortgage rate shoppers were on a veritable roller coaster.
- Monday and Tuesday, rates dipped
- Wednesday and Thursday, rates surged
- Friday, rates retreated
Overall, conforming mortgage rates carved out a half-percent range this week. This caused fit for home buyers in need of a rate lock, and homeowners interested in refinancing.
Rates changed quite a bit from day-to-day, and even from hour-to-hour at times.
This is the same brand of mortgage rate volatility we've seen all year and it's expected to continue through at least this week, too. There are a number of market-moving events set to hit.
The event with the largest potential impact is the Federal Open Market Committee's two-day meeting.
Scheduled for Tuesday and Wednesday, the Bernanke-led Fed is not expected to raise the Fed Funds Rate upon its adjournment but the markets are more interested in what the Fed says than what it actually does.
If the Federal Reserve says that long-term inflation is a concern, mortgage rates should rise because inflation often leads rates higher. Similarly, if the Fed says the economy is recovering quicker than expected, mortgage rates should rise on that story.
The Fed adjourns at 2:15 PM Wednesday so watch for big market swings around that time.
In addition, there's some big data points due out this week including the Existing Home Sales and New Home Sales reports, plus the Personal Spending and Consumer Sentiment survey.
Each of these reveals the psychology of the U.S. consumer and consumers with dollars to spend move the economy forward. If the reports are overwhelmingly positive, mortgage rates should rise as a result. On the other hand, if the data is weak or non-convincing, mortgage rates should ease.
Mortgage rates are suffering through another volatile week, causing problems for rate shoppers and home buyers.
After falling Monday and Tuesday, mortgage rates surged Wednesday and Thursday. The momentum higher appears to be carrying into the weekend, too.
There are several data-related reasons for the mortgage market's spastic activity this week:
- Unemployment claims fell
- Leading Economic Indicators rose
- Inflation readings are tame
But while each of the data points above fueled mortgage rate volatility, it's not the data that's making markets move the most. It's the psychological impact of the data.
See, data tells us about the past. It measures and reports on what's already happened. Unfortunately for rate shoppers, mortgage markets are not made on data from the past -- they're made on the expectations of what will happen next.
Mortgage rates reflect Wall Street's opinion of the future.
In reading the papers and watching the news, you'll notice ongoing debate about the U.S. economy. It's unclear whether the recession is worsening or improving.
On one hand, data is weak and sub-optimal. On the other hand, the data is not nearly as weak as it was 6 months ago and, in some cases, it's strong. To some, this is a signal that a recovery is already underway.
Or, it may just be a blip.
We can't be certain in which direction the economy is headed and the same can be said for mortgage rates. Because sentiment is changing so often, though, it forces us to be on our toes.
The last few months have been marked by large mortgage rate swings across small windows of time. A rate that's offered in the morning, for example, is rarely available in the afternoon. Therefore, do your rate shopping in a compressed period of time and be ready to lock your rate at a moment's notice.
When markets move, they tend to move quickly.
Moving to a new metropolitan area requires adjustments. There's new streets to learn, new weather patterns to get used to, and new social cultures to assimilate.
There's also new costs.
Just like home values vary by area, so does the Cost of Living. To visit a doctor in Chicago, as an example, costs a person more than to visit a similar-type doctor in Des Moines.
Cost of Living adjustments can't be ignored between two cities because it changes a household's budget.
And while it's a challenge to know exactly how far your dollar can stretch in a new town, Bankrate.com hosts a helpful Cost of Living Comparison Calculator to make the math a little easier. With categories such as dry cleaning, groceries and beauty salon, the calculator goes extra deep into the typical costs to a household, and can help families to make more realistic budgets.
The calculator also shows the equivalent household income between any two metropolitan areas.
After being range-bound since the start of the year Housing Starts unexpectedly jumped in May, surprising analysts and Wall Street.
It's the latest in a string of housing-related data that suggests a real estate recovery is already underway.
Housing Starts is an important statistic for a number of reasons, but to homebuyers and home sellers, its immediate impact is on home inventory.
Home values are based on supply and demand. When the demand for homes exceeds the supply, values tend to rise. Conversely, when supply exceeds demand, values tend to fall.
When Housing Starts increase as they did in May, therefore, unless there's a corresponding increase in demand, home prices get pressured downward.
Lately, that off-setting demand appears to be present.
With home affordability near record-high levels, mortgage rates well below historical averages, and the first-time homebuyer tax credit in place, Existing Home Sales are up 16 percent on a "raw numbers" basis versus last month and home supplies are lower versus last year.
Rising Housing Starts can a double-edged sword to a recovering economy. It's a strength signal that builders are more optimistic right now, but too much optimism can lead to a glut of unsold homes that pushes housing back to the brink.
So long as demand outpaces supply, however, inventories should reduce and values should move higher.
Americans are feeling better about their budgets right now, raising the possibility of a full economic recovery.
According to a University of Michigan and Reuters, Consumer Sentiment rose for the fifth straight month in June.
Consumer Sentiment is now at its highest levels since September 2008, the month in which Lehman Brothers failed, Fannie Mae and Freddie Mac were nationalized, and the global financial crisis is believed to have peaked.
Rising confidence levels are important to the economy -- and to housing --because a confident consumer is more likely to make the big-ticket purchases that propel the economy forward.
This includes buying new homes.
That said, the Consumer Sentiment Survey has its flaws.
For one, the survey's sample set includes just 500 families. This is hardly a cross-section of America. Secondly, when people feel better about their finances, it doesn't always lead to additional consumer spending -- it could lead to more saving.
What people say they'll do and what they actually do can be two very different things, but if consumer spending does increase in the months ahead, expect home sales to benefit on the willingness of families to "take more chances" and expect mortgage rates to suffer on concerns for inflation.
The mortgage market roller coaster continues. Markets worsened badly in the early part of last week, before rallying into Friday's close.
Overall, mortgage rates were slightly higher for the week even though -- briefly -- they rose to levels not seen since November 2008.
Last week marks the third week in a row and the sixth out of the last seven that mortgage rates increased.
It's not all bad news for mortgage rate shoppers, however. The market's surge higher appears to be slowing and its momentum may start to reverse.
See, mortgage rates don't come from thin air. They're based on the price of mortgage-backed bonds and, over the last few weeks, it seems as if nobody on Wall Street wanted anything to do with them. A massive sell-off that caused bond prices to plummet and mortgage rates to soar.
Freddie Mac says rates are up 3/4 percent in the last 3 weeks but loan officers will tell you that's undercutting it. Conforming mortgage rates are up more than 1 percent since Memorial Day.
The biggest reason for the sell-off was that markets feared a runaway inflation scenario. The U.S. Treasury has assumed an unprecedented debt load this year and to repay it, markets expect the government to print more cash -- an inflation-inducing scenario.
However, when a number of high-profile investors and a country said last week that their faith in the U.S. economy remains strong, markets viewed it as an endorsement of government-issued debt. It served as Thursday and Friday's rate-dropping catalyst.
This week, mortgage rates will move on three points:
- Data, including key inflation and housing reports
- Rhetoric, including 5 Federal Reserve member speeches
- Momentum, including technical trading patterns
It's unclear whether these factors will lead rates higher or lower, but one thing has been clear lately -- when mortgage rates change, they change quickly.
Therefore, if you're shopping for a rate and find one that fits your budget, consider locking in right away. With rates changing every few hours, it's likely that if you wait too long, the rate will be gone.
When finances are tight, homeowners are often forced to choose between making home repairs right away, and putting them off until finances improve.
Some repairs, though, become more expensive if not tackled on the double. The hard part is knowing which fixes those are.
In this 5-minute piece from The Today Show on NBC, a Consumer Reports editor talks about important, must-make-them-now home repairs, including:
- Re-sloping soil for runaway rainwater
- Replacing curled and cracked roofing shingles
- Sealing damaged vinyl siding
- Replacing soft wood
- Treating mold issues -- both major and minor
Maintaining a home preserves its long-term integrity and can help support resale value, too. Not every minor fix must made today, but left unchecked, some minor fixes can turn into major ones -- and that's when costs can pile up.
The Pareto Principle is a statistical concept most commonly known as the 80/20 Rule.
It says 80 percent of the effects come from 20 of the causes.
Apparently, the 80/20 Rule applies to foreclosures, too -- at least according to data compiled by foreclosure-tracking firm RealtyTrac.
Based on data from May, 11 states accounted for 80% of the country's foreclosure activity. The remaining 20% was spread across the 39 others.
That's 80/20 almost to the tee.
The disparity goes deeper that that, though. The top three states in RealtyTrac's list -- California, Florida, Nevada -- were home to half of May's foreclosure-related actions.
Clearly, foreclosures are concentrated in certain geographies.
But, no matter in which state you live, foreclosures still impact you. This is because mortgage lenders are often national companies, lending in all 50 states.
When home loans go bad -- in any state -- lenders respond by increasing downpayment requirements and by adding new borrowing hurdles. If you've applied for a mortgage in the last 18 months, you've experienced this phenomenon personally.
On the other side, if you're a home buyer in a foreclosure-heavy state, you're finding terrific value versus several years ago. It's one reason why Existing Home Sales in the West Region are up by 19 percent from last year, for example.
Tighter mortgage guidelines since late-2008 are forcing home buyers to make bigger downpayments. Anecdotally, the change has led to a surge in buyers taking gifts of cash from family members.
If you're among those accepting a cash gift from family, it's important to know that you can't just deposit the money in your bank account.
There is a proper way to accept a cash gift and it requires 3 distinct steps:
- Complete and sign an acceptable gift letter
- Document the gifter's withdrawal of funds with teller receipts
- Document the giftee's deposit of funds with teller receipts
See, mortgage lenders pay close attention to gifts-for-downpayments. For one, lenders have to make sure that downpayment cash is "clean" (i.e. not laundered). And, secondly, they want the gift to really be a gift and not a loan-in-disguise.
This is why lenders will often require that a signed, dated letter accompany the home loan application.
As an example:
I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].
This is a gift -- not a loan -- and there is no expectation of repayment.
Signed,
[Signature of gifter]
To further appease lenders, gift recipients should make sure that gift funds are not commingled at the time of deposit. If the gift is for $12,000, for example, the bank's deposit slip should indicate that a $12,000 deposit was made -- nothing more, nothing less.
Don't add a random $50 check to the deposit, in other words. If you have a separate deposit to make, make it as a subsequent transaction with its own receipt.
It's also worth noting that gifting funds between family members can create both legal and tax liabilities. If you're unsure about how donating or receiving a gift may impact you, call or email me directly. If I can't help you with your questions, I can refer you to somebody that can.
Since Memorial Day, conforming mortgage rates have jumped by more than 1.125 percent, adding thousands of dollars to the annual cost of homeownership.
To the casual observer, the moves may seem random. There's a reason this is happening, however.
It starts with inflation.
As an economic force, inflation erodes the value of the U.S. Dollar. Left unchecked, it drives up the Cost of Living as each dollar "buys less" at the supermarket, gas station, or anywhere else.
But with respect to mortgage rates, inflation's impact is more immediate. Because inflation devalues the dollar over the long-term, it renders long-term mortgage bonds a less attractive investment for traders.
If bond investors are repaid in U.S. Dollars, after all, it would make the investment worth less if the dollar is in an inflationary freefall.
Therefore, in situations when inflation is likely to present, we find that traders often sell out of their mortgage bond positions which, in turn, drives down the bond prices. Then, because bond yields move in the opposite direction of bond prices, rising rates are the inevitable result.
Lately, Wall Street is fearing inflation for a number of reasons:
- Job losses are slowing, adding to consumer spending expectations
- Gas prices have risen 41 days in a row
- The federal government is increasing the money supply
These 3 factors -- plus a few others -- are all coming to a head around the same time and traders are getting defensive with their portfolios. As a result, they're selling their mortgage bond positions and it's driving mortgage rates higher.
Rates may continue to trek toward 7 percent through July and August, or they may retreat toward 5 percent. We can't know for sure. What we can know, though, is that volatility in rates should continue until the economic picture gets more clear. That could be next week, or next year.
For now, be ready to lock at a moment's notice. Mortgage rates are changing quickly.
The economy posted stronger-than-expected data last week, reigniting fears of inflation on Wall Street.
The positive-slanted economic news caused conforming mortgage rates to rise by another 1/2 percent last week.
It marked the second week in a row of soaring mortgage rates and the fifth week out of six that rates have moved higher.
Conforming mortgage rates are now as high as they've been all year and rest at the levels of December 2008.
The biggest news of last week is likely to influence mortgage rates this week, too.
On Friday, we learned that 345,000 Americans lost their jobs in May. And while that's an awfully large number, it wasn't nearly as bad as Wall Street had expected. Furthermore, the Unemployment Rate spiked to over 9 percent.
Now, again, with respect to the Unemployment Rate, the number looks bad, but the data may be a positive. This is because the Unemployment Rate measures Americans in the workforce versus the unemployed actively looking for jobs.
If the number of people trying to re-enter the workforce starts to surge, it's basic math that Unemployment Rates will rise. This is what some economists think happened last month and it served as the backdrop for Friday's rate surge.
With fewer Americans expected to be out of work, consumer spending seems poised to rebound in the months ahead, pushing the economy out of recession sooner than expected. If the sentiment holds this week, mortgage rates should rise even more.
Without much new data this week, markets are likely to trade on emotion -- a difficult situation for rate shoppers. Conforming mortgage rates have been extremely volatile since May and are changing every few hours. If you see a rate you like, consider locking it.
Wait around too long, and it'll be gone.
Suze Orman recently appeared on The Today Show and gave 5 minutes of practical money management advice. Not everyone's a fan of Ms. Orman, but this is an interview worth watching.
The segment's theme is "What should you do first?", pitting real-life financial scenarios against each other, including:
- Pay off credit card debt, or save for an emergency?
- Pay off student loan debt, or pay off credit card debt?
- Save for retirement, or save for a child's college tuition?
The advice is practical and relevant to most homeowners' lives and, although financial tips are never one-size-fits-all, there's some real gems in the segment.
Watch the entire interview at The NBC Today Show website.
In choosing its 2009 lineup of Top 100 Places To Live In America, Relocate America focused on areas with stable local economies and in which the housing market has avoided precipitous price drops.
It's not a bad formula and topping the list of Top 100 Places To Live In America is Tulsa, Oklahoma, a city in which unemployment rates are 3 percent below the national average and the housing stock is, in general, considered affordable.
This was a common theme among the cities included, the Top 10 of which are:
- Tulsa, Oklahoma
- Dallas/Ft Worth, Texas
- Pittsburgh, Pennsylvania
- Raleigh/Durham, North Carolina
- Huntsville, Alabama
- Houston, Texas
- Albuquerque, New Mexico
- Lexington, Kentucky
- Little Rock, Arkansas
- Oklahoma City, Oklahoma
Relocate America notes that the cities on its 2009 list are poised to make a faster comeback from the economic recession than other U.S. cities, and few experienced the effects of the housing boom earlier this decade.
View the complete Top 100 Places To Live In America 2009 list at the Relocate America website.
The number of homes under contract to sell soared in April, climbing nearly 7 percent nationwide versus a month ago.
It's the third straight month in which the Pending Home Sales Index gained and the biggest monthly jump since October 2001, the month prior to the end of the Early 2000s Recession.
A "pending" home sale is one that's under contract to close, but has yet to do so.
The Pending Home Sales Index is an imperfect statistic because not every home under contract makes it to closing, but the data can a reliable indicator of home buyer activity.
It's not tough to understand why homes-under-contract are spiking:
- There's a $8,000 tax credit for first-time home buyers
- Conforming and FHA mortgage rates are hovering near 5 percent
- Home prices are still soft nationwide
These elements are combining to make homes more affordable than they've been in the recent past. Indeed, in April, the Home Affordability Index posted its second highest reading since 1970.
We can't know if home prices will rise or fall going forward, but if Pending Home Sales translate into closed home sales, values will be pressured to rise. This is because each closed transaction takes a home "off the market", reducing the supply of available properties.
If demand rises while supplies fall, sellers regain the upper-hand in negotiations and higher prices are the inevitable result.
An estimated 80 percent of all Pending Home Sales close within 2 months.
Mortgage rates soared again Monday, tacking on a half-percent in a day for the second time in under a week.
Each half-percent adds $62 to a $200,000 home loan's monthly payment, or $744 per year.
For home buyers recently under contract, it's a gut-wrenching time to be shopping for a home loan. Morning mortgage rates have been typically gone by early-afternoon and -- in some cases -- lenders have changed rates five times in one-day span.
The reasons for surge in rates are varied, but each is related to the idea that the economic recession may be nearing its end.
Each of these points bodes well for the economy and pushes Wall Street investors towards more risky investments. As a result, "safe" investments get sold -- including mortgage-backed bonds, the basis for conforming mortgage rates.
For as long as the future of the economy remains in question, expect mortgage rates to remain volatile. We won't get half-point rate swings or five pricings in a day every day, but both are becoming more common.
Be careful when shopping for a mortgage -- the rate you're quoted may not last long.
Mortgage markets took a beating last week, sending conforming mortgage rates soaring Wednesday afternoon. Despite a modest recovery Thursday and Friday, though, mortgage rates still moved higher on the week overall.
It was the fourth time in 5 weeks that mortgage rates worsened.
By far, the biggest news of last week was Wednesday's mortgage market meltdown.
Beginning shortly after 1:00 PM ET, and in the span of about 90 minutes, the 30-year fixed mortgage rate soared. The action was so swift that a number of mortgage lenders shut down their Lock Desks, unwilling to accept new business.
There was no "news"-like reason for the action, by the way -- just a general feeling on Wall Street that the U.S. government's massive debt load may lead to inflation sometime in the future. As inflationary fears rise, mortgage rates often rise with them and this is what we witnessed happened Wednesday.
Markets regained their cool Thursday and Friday, but could only erase half of Wednesday's surge.
This week, look for data to determine whether mortgage rates rise or fall. Monday and Friday will be the biggest days.
On Monday, in addition to releasing consumer spending data from May, the government publishes the Federal Reserve's preferred inflation gauge. If either number comes in hotter-than-expected, mortgage rates should rise.
Similarly, if Friday's employment data is better-than-expected, rates should rise, too. More working Americans means more consumer spending and spending makes up two-thirds of the economy.
Markets expect that another 550,000 workers lost their jobs last month, raising the 12-month total to 5.65 million.
Between Monday and Friday, a number of Federal Reserve members will be speaking publicly, including Fed Chairman Ben Bernanke. Each speaker's statements, of course, can influence mortgage rates as well.
Overall, markets remain volatile and mortgage rates are jumpy. If you find a rate that fits your budget and with which you can be comfortable, consider locking it in before the news gives the rate reason to change.
As this week's signal that homebuyers are returning to the market, both Existing Home Sales and New Homes Sales posted improvement versus month-prior figures this April.
According to the National Association of REALTORS, the number of Existing Home Sales rose by 130,000 units in April.
New Home Sales rose by a modest 1,000 units in April.
As a twist in the story, however, although sales activity is rising, the available housing inventory is rising faster.
Versus March 2009, there were 300,000 more homes for sale in April -- an increase of 9 percent. In addition, the "housing supply" rose to 10.2 months, its highest level since October.
This is good news for home buyers, of course, because home prices are a product of Supply and Demand. Depending on local conditions, buyers may find themselves in a position to demand lower sale prices or additional seller concessions.
The housing market has not fully rebounded but it continues to show signs of strength. With a few more months like March and April, it's reasonable to assume that homebuyers will lose some of their leverage for contract negotiation.
When that happens, expect home prices to rise.
_1243493523.jpg)
Conforming mortgage rates rose by 0.625 percent Wednesday. Yes, you read it right. Zero-point-six-two-five percent.
The surprise surge in pricing started shortly after 1:00 P.M. ET, then continued all the way until the market's closing. It was the sharpest one-day surge in mortgage rates in recent history. Perhaps ever.
For mortgage rate shoppers swept up in the surge, monthly payments are now higher by $29 per $100,000 borrowed.
That's a significant shift.
For as rare as Wednesday's events were, though, middle-of-the-day, 0.625 percent rate changes don't just happen. Yesterday, the action was the result of a confluence of factors, including:
In addition, momentum trading played a role.
As markets worsened, selling begat more selling, amplifying Wall Street's total losses. As mortgage bond prices fell, mortgage rates went up. By a lot.
Mortgage markets are notoriously fickle and yesterday's events proved it. Days like Wednesday are precisely why insiders recommend shopping for mortgage rates in a compressed timeframe. The faster you finish, the lower the risk of losing low interest rates to new market conditions.
Each month, researchers measure home values in 20 large U.S. cities, then compile their findings in a report called the Case-Shiller Index. It's a popular measurement of housing health across the country, but it's far from perfect.
As 3 examples:
- It gives more weight to expensive homes than inexpensive ones
- Its sample set includes just 37 states of 50 states
- Real estate isn't a "national" market -- it's local
All that said, however, the data is still important. The Case-Shiller Index helps identify broader trends in housing and it's widely believed that the economy won't recover until the sector starts to stabilize.
We may be at that recovery point now.
Despite newspaper headlines blaring about 19 percent drops from March 2008, the month-to-month values appear to be stabilizing and the latter is the more important development. 15 of the 20 markets covered by Case-Shiller either improved, stayed flat, or declined by 0.2 percent or less.
Versus 2008, the rate of speed at which home values are falling is slowing.
Furthermore, because the Case-Shiller Index is on a 2-month delay, it doesn't account for all of this year's Spring Buyers, or first-timers taking the $8,000 first-time homebuyer tax credit.
Two months don't make a trend, but if Case-Shiller Index continues to report similar data for April and May, it could be the signal that housing finally bottomed.
Mortgage markets reacted poorly to not-as-strong-as-expected housing data and employment data last week causing mortgage rates to rise on the week overall.
It was the third time in 4 weeks that mortgage rates were up.
To the detriment of rate shoppers, mortgage rates were especially volatile Thursday and Friday.
As an increasing number of traders punched out ahead of the 3-day weekend, the mortgage pricing swings grew wider and wider. Rates were at their lowest last week on Wednesday morning. By Friday, some mortgage rates were higher by as much as 3/8 percent.
This week, with traders coming back to work, the pace of change should slow a bit, if not for the volume of closely-watched data expected to be released.
The data with the largest potential impact on mortgage rates this week is related to the housing market. There will be 3 separate reports -- each expected to show that housing is still weak, but not as weak as it was.
- Tuesday: Case-Shiller Price Index
- Wednesday: Existing Home Sales
- Thursday: New Home Sales
However, because real estate is local in nature and these reports are broadly national, it's important to not read into them too much. They're good for an overview but shouldn't be used as the basis for an offering price.
In addition, there will be two consumer confidence surveys released -- one on Tuesday and one on Friday.
Consumer surveys can be important in a recovering economy because as confidence rises, spending often does, too, and consumer spending represents two-thirds of the U.S. economic engine. If confidence is rising, expect the stock market to benefit and the mortgage bond market to suffer.
This would lead mortgage rates higher.
It's unlikely that mortgage markets will display the same volatility this week as compared to last week, but that doesn't mean that mortgage rates won't change. With so much data crossing the wires in the next 4 days, it's likely that Friday's rates will be different from today's.
Therefore, if you've found a rate and payment with which you can be comfortable, consider locking it in. It's unlikely to last long.
Rates go up, rates go down. Catch them while you can.
After Wednesday's mortgage market rally drove rates down by a bunch, Thursday's sell-off pushed them right back up.
This has been a common pattern in the skittish world of mortgage rates this year.
With the U.S. economy still teetering between recession and growth, markets are looking for signals anywhere it can find them. Thursday's clue came from a government report showing that more Americans are collecting unemployment benefits than at any point in history.
Strangely, mortgage rates rose on the news.
We call it "strange" because weak economic data has tended to draw mortgage rates lower lately to the benefit of prospective home buyers and would-be refinancers. Lower rates make homes more affordable.
Thursday, though, the pattern broke.
The main reason why mortgage rates rose Thursday isn't because of the employment report or any other piece of data. Rates rose Thursday for the same reason that they had dropped the day prior -- the Federal Reserve.
On Wednesday, the released minutes from the Fed's last meeting suggested that the group might make a larger mortgage market intervention. On Thursday, in the face of worsening jobs data, markets bet the Fed wouldn't.
Mortgage rate shoppers, unfortunately, got caught in the crosshairs.
Rates can -- and do -- change quickly, without warning. And, thus far this year, the changes have been extra sudden. This is one reason why it's often prudent to lock a mortgage rate as soon as you find one that's agreeable. Wait too long, and it could be gone.
Expect more volatility today with traders leaving early for Memorial Day Weekend. Less volume means more chances for rates to change.
Mortgage rates fell after the Federal Reserve released its April 28-29, 2009 meeting's internal notes Wednesday.
Officially known as "Fed Minutes", the report is an in-depth account Federal Reserve's last get-together, detailing the discussions and decisions that create our country's monetary policy.
It's the lengthy companion to the Federal Reserve's brief, post-meeting press release.
For comparison's sake, the Federal Reserve's April 29 announcement contained 383 words. The minutes of that same meeting held 5,754 words. The extra words offer extra details about what the next monetary steps might be for the nation's policymakers.
This is a big deal to markets because investors are always looking for clues about what's next -- especially considering how the April Fed Minutes showed that group discussed increasing its $1.25 trillion mortgage market commitment to something bigger.
Remember that the Fed's mortgage-buying program is largely credited with keeping mortgage rates low this year. If there's more buying ahead, that should help rates stay similarly low. Mortgage rates fell Wednesday in anticipation of a move like that. For now, though, the Fed Minutes are just talk.
As economic conditions change later this year, so might the Federal Reserve's stance.
